Its unwise to use stockbrokers analysts ratings in isolation to pick shares, but if a consensus in the City accords with our own research then it could be worth digging deeper into the situation.
Right now, City analysts mostly have a buy rating on Reckitt Benckiser Group(LSE: RB), Rio Tinto (LSE: RIO) and Royal Dutch Shell (LSE: RDSB).
Steady progress
Recent first-quarter results from consumer goods firm Reckitt Benckiser highlighted a workmanlike performance of steady growth. Like-for-like sales improved by mid single-digit percentages in most areas.
Around 64% of revenue comes from Europe and North America last year and 32% from developing markets. Worldwide, the firm is doing well with its power brands in the hygiene, health and home markets names such as Dettol, Harpic, Durex, Strepsils, Gaviscon, Cillit Bang and Calgon.
The firms offerings generate decent cash flow from customers who buy the products, use them up, and then buy them again. Such gold-plated repeat business is always attractive to investors and, as a consequence, Reckitt Benckisers shares rarely sell cheap. However, theres been something of a pullback in the share-price recently, which could be fuelling City analysts enthusiasm.
Commodity-price weakness
Through 2014 and the first half of 2015, Rio Tintos share price gradually declined along with the selling prices of the commodities the firm produces. The firms chief executive reckons a drive for efficiency in all aspects of Rios business reflects in a solid production performance.
Production figures are up, and Rio Tinto hopes that making use of its assets and low-cost base will protect profit margins in the face of declining commodity selling prices. Yet such a strategy will only hold water as long as those commodity prices dont shrink too far. Rio Tinto produces resources for which the company has little control over output selling prices. All the firm can really do is increase or decrease its production, and if production results in a loss then it will need to be curtailed in the end.
Historically, commodity prices were much lower than even todays fallen levels so, despite City analysts positive ratings, Im not tempted by the big dividend yield on offer with Rio Tinto right now. The outlook for commodity prices at this point in the macro-economic cycle is far too uncertain.
Dividend delight?
At todays 1901p share price, Royal Dutch Shells forward dividend yield for 2016 runs at about 6.5%. Thats attractive, and even more so when we realise the firm has either maintained or raised its dividend every year since 1945.
Yet theres a big change afoot that could draw on cash flow cash flow available to service the dividend and thats the firms proposed takeover of BG. Shell expects the deal to accelerate its growth strategy in global LNG and deep-water operations. In the end, better forward growth prospects should help the firm continue its tradition of dividend reliability, but maybe short-term challenges surrounding the integration of BG, perhaps antagonised by the current weaker oil-price environment could put the level of the dividend payout at risk.
Shell is, of course, optimistic, saying an enhanced set of upstream positions will increase the firms ability to sell assets and reduce capital investment, which will enhance the companys capacity to pay dividends and undertake share buybacks. So, why then has the share price been falling recently? A high yield can act as a warning to investors, but if the yield proves to be sustainable, Shell looks like good value right now.
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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.